Speaking Out: Some Evils of Outsourcing

About 15 years ago, aircraft companies hired business school graduates (MBAs) to gain fresh insight into the best business practices taught in our American institutions of higher learning, such as Harvard, Wharton and Stanford. The then-current thinking was that the costs associated with operating and maintaining factories in the U.S. were excessive and that OEMs could save money and increase profits by jobbing out fabrication and assembly work. Because labor was a large part of the cost of production in U.S. facilities, a key part of the revised business plan involved moving production to Mexico or “offshore” to locations in Eastern Europe, China and India. As U.S. shops closed, workers were laid off and equipment was sold off. The capabilities to build in-house diminished or vanished entirely, but outsourcing did reduce the OEM’s capital expenditures to modernize shops with new equipment and train replacement shop technicians. And in the short term, profits certainly increased.

What wasn’t factored into the outsourcing equation, however, was the inevitable loss of a critically important component of any manufacturing process — design expertise — the cost of which is not easily quantified. When engineers design and shops build products in-house, there is a feedback between the two departments that are generally located in the same facility. Designers can easily walk down to the fab shops whenever a problem arises to see the effects of their design and to immediately propose a corrective action to a problem. And the engineers receive a definite advantage in recognizing faults/weaknesses in their designs by seeing the tangible results of their ideas. During the fabrication and assembly of the DC-XA reusable rocket in 1996 during my tenure at McDonnell Douglas (Huntington Beach, Calif.), the designers actually were located on the shop floors to expedite immediate solutions to problems and to keep the work flowing. When a part interfered with another during assembly, the remedy involved a quick walk to the shop to see and redline a drawing for an immediate fix, followed by a design change the next day. This system worked very well for 80 years, and the close rapport established with the shop technicians who physically built aircraft produced some of the best aerospace designs and products in the world. This exchange was absolutely necessary when doing development work on new programs where new technology was being generated each day.

Some say that the computer now makes face-to-face contact unnecessary. Boeing designers, for example, showed live shots of the 787’s widely publicized fuselage “gap” recently to engineers all over the world, and they were able to communicate about it via phone, e-mail and even directly, live via Internet connections. While it wasn’t face-to-face, it was reasonably immediate.

But no matter how fast or convenient we make the exchange of digital information from country to country or continent to continent, it can’t replace being there. In my day, many design and process problems were avoided because engineers could visit shops daily and watch as a part was made or raise a question about how a part would be joined to catch an issue before it impacted production. Today, when design and fabrication facilities can be thousands of miles apart, that kind of personal contact between design and fab shops isn’t practical. The expense and time involved in travel is prohibitive, so we lose opportunities to spot and correct problems before they become expensive — not to mention embarrassing.

Our industry loses so many other capabilities when we give away the basic work. As a compromise, OEMs could keep the development capabilities (design, prototyping, testing) viable in-house and just send out routine manufacturing tasks after the design is proven. This would still allow the OEM to outsource rate production at lower cost but would maintain the stimulation and optimize the learning process for the engineering and shop technicians.

But I wonder if, in 20 years, there will be a breakthrough revelation one morning at Harvard: A business school professor proposes that design and manufacturing groups be positioned in the same facility so they could be in contact on a daily basis. A pilot program would demonstrate that production can be improved tremendously and that new designs benefit from the interaction. This new type of facility, called a “factory,” is quickly embraced as revolutionary thinking by our best business brains. And I roll over in my grave and smile.

Bob Hartunian is a retired Boeing Technical Fellow. He logged 32 years in the composites manufacturing business, first at McDonnell Douglas in Huntington Beach, Calif. and then at The Boeing Co. (Seattle, Wash.) when McDonnell Douglas became part of Boeing. He built and flies a Pulsar composite plane.